by There is a famous saying about planning attributed to Benjamin Franklin:
“If you fail to plan you plan to fail”
The same goes with money. If you don’t have a plan for your money you have great odds of “failing”.
In this case we will define failing as “not having sufficient reserves and not increasing your financial worth to the value it could have been should you have a plan.
Some call it a budget, others call it a spending plan, today we are just going to ask you to have a plan for what you do with a portion of your money.
The Planner vs the Leftover
Over the years we have discovered, in regards to finance, there tends to be two groups of people:
- I put investing first and I pay myself first
- I save/invest with what’s left over when I have it
One of our goals here at Bridges Twins is to get you to be part of the group that puts yourself first. We want you to pay yourself before you pay for anything else. This will help put you ahead in the future. It may not sound exciting however we think it can be.
Today we want you to look at two individuals.
- Individual 1. They want to pay themselves first. They have made a commitment to their future self. They are willing to have maybe 1 or 2 less trips to Starbucks. They don’t buy the top end car but they still buy the car they want. It just may have a few less features. They don’t keep up in the latest fashions annually but enjoy having nice clothes that they can find on sale or on outlets. They don’t track every penny as they want to live. They want a better future for themselves. They participate in the retirement plan at their job however they want to have additional funds so they can either buy more real estate down the road or improve their current home.
- Individual 2. They figure it’s all going to work out. They want to live for today. They can’t be bothered with tracking expenses even in the least. Often they are out of money with a few days left in the month. They often borrow from their emergency fund for non emergencies. They enjoy going out on a regular basis. They look at opportunities to save as beneath them. They grew up having to cut corners and vowed they wouldn’t do that when they grew up. They are willing to invest but only after they have had fun and if there is something left over.
In our example today each individual looks at their monthly expenses and decides the following:
- Person A. They make a commitment to $175 a month. They will do this regardless of bills. They put this bill first and work around this. The bill is a non negotiable amount
- Person B. Since they are only saving what’s left over they rarely have more than $50 left at the end of the month. They decide that $50 is all they can do and sure if they somehow get a raise or some money comes up they will invest it but won’t promise anything.
How does this play out?
In the example below they both put the funds in a low cost index fund. They estimate that future returns will be less than the S&P 500 historical average of 10% and have used a conservative 8% return.
In 3 years the difference is already nearly $5K in favor of person A. Since person A has made a steady habit their advantage continues to grow over time.
Over 20 years their advantage is over $70K.
They have sacrificed very little on a monthly basis in the grand scheme of things. Over that time they only went out to eat 1 less time monthly and gave up a couple of runs to Starbucks. Over the 20 years they have reaped the rewards of a steady habit.
Person B, while they enjoyed a few more luxuries, has few options in the future.
Which future do you want? Do you want more options? Do you want to be able to make moves? Because of compounding and time small inputs today can make a very large impact on your future finances.
Twins Rules for Financial Success
As with all of our content here we want to encourage you to follow three core rules :
- Have an Emergency Fund/Squirrel Funds
- Invest for the Long Term
- Invest Automatically & Consistently
